Alan Perkins State Pension Tax: Why He Pays £800 to HMRC?

Alan Perkins pays around £800 in income tax despite relying solely on his state pension. The 71-year-old retiree receives more than the standard state pension because of additional payments built up through the State Earnings-Related Pension Scheme (SERPS), pushing his annual income above the personal allowance.

His case has attracted attention as Rachel Reeves plans to exempt some pensioners from paying tax when the state pension exceeds the personal allowance in 2027.

However, pensioners with SERPS-enhanced state pensions, such as Mr Perkins, could still face tax bills, raising concerns about fairness and creating what critics describe as a “cliff-edge” policy.

Why Is Alan Perkins Paying Income Tax Despite Relying Solely on the State Pension?

The central issue is that Mr Perkins receives more than the standard full state pension. Unlike many pensioners, his retirement income includes additional payments earned through the State Earnings-Related Pension Scheme (SERPS), which boosts his annual state pension income to approximately £16,500.

That places him around £4,000 above the current personal allowance of £12,570, meaning part of his income becomes taxable.

Mr Perkins told reporters:

“I’ve worked like a dog for all of my life. I worked stupid amounts of overtime to provide for my family. I would leave home at 6.30 in the morning and get in at 10.30 at night, and that was five days a week.”

He added:

“Although we were all living in the same house, it meant I didn’t really see my children grow up much. And now I’m retired, they take tax out of it. I never thought anyone on a state pension would pay tax. I can’t get my head around it.”

His case demonstrates how some pensioners who rely entirely on state pension income can still face tax liabilities.

How Did Alan Perkins End Up Receiving More Than the Full State Pension?

For much of his working life, Mr Perkins paid into SERPS, a government-backed pension arrangement that allowed workers to build additional retirement income on top of the basic state pension.

What Was SERPS?

The State Earnings-Related Pension Scheme (SERPS) operated between 1978 and 2002 and played a key role in boosting retirement income for many workers.

It worked alongside the basic state pension and rewarded contributions over time.

• Workers paying standard Class 1 National Insurance contributions automatically built additional pension rights unless they chose to contract out.
• The scheme linked pension benefits to earnings, meaning higher earners could build larger entitlements
• Longer contribution records resulted in increased retirement payments.

How SERPS Was Replaced by the State Second Pension and New State Pension?

Over time, SERPS was phased out and replaced by newer systems designed to simplify and modernise state pension provision.

• SERPS was replaced by the State Second Pension (S2P), which aimed to provide more support for lower earners
• Both SERPS and S2P were eventually absorbed into the new state pension system introduced in 2016
• Although new retirees now receive pensions under the updated system, many existing pensioners still receive payments built up under earlier schemes

Why Some Workers Chose to Opt Out of SERPS?

Not all workers remained in SERPS, as many chose alternative pension arrangements based on financial or personal preferences.

• Millions of employees contracted out to reduce National Insurance contributions.
• Savings were redirected into workplace or private pension schemes instead.
• Some believed private pensions offered greater flexibility or higher returns.

Mr Perkins took a different approach. Having worked largely as a commercial heating engineer, he chose not to join company pension schemes because he believed keeping his retirement provision within the state system would be simpler and easier to manage.

That decision now provides him with an extra £90 per week but also places him above the tax-free threshold.

What Does Alan Perkins’ Story Reveal About the Reality of Retirement in the UK?

Alan Perkins’ experience highlights a growing concern for many retirees who expected the state pension to provide a straightforward source of income in later life.

After spending five decades working across different jobs and putting in long hours of overtime, he did not expect to face an income tax bill while relying solely on his state pension.

Mr Perkins believes the issue is largely the result of frozen tax thresholds rather than recent state pension increases.

Reflecting on the situation, he said:

“This mess started in 2021 when Rishi Sunak froze it. The tax thresholds should have gone up for everybody, and this is the consequence.”

He also questioned whether the Government’s proposed tax exemption fully considers pensioners with additional state pension entitlements:

“When I saw Rachel Reeves announce that people only on the state pension would be exempt, I thought big deal, I’m already paying it. Does she not realise there are people like me?”

His case demonstrates several challenges facing today’s retirees:

• Long working careers do not necessarily protect pensioners from income tax.
• Additional state pension benefits can push retirement income above the personal allowance.
• Frozen tax thresholds are bringing more pensioners into the tax system.
• Proposed tax exemptions may not benefit everyone who relies solely on state pension income.

According to the Pensions and Lifetime Savings Association, Mr Perkins’ annual income of around £16,500 is only modestly above the £13,400 minimum retirement living standard, highlighting how some pensioners can face tax bills despite having relatively limited retirement income.

How Much State Pension Does Alan Perkins Receive Compared With Other Pensioners?

Alan Perkins’ Annual State Pension Income Breakdown

Mr Perkins receives:

Income Source	Annual Amount
Standard State Pension Element	Included
SERPS Enhancement	Around £4,500
Total Annual State Pension Income	Around £16,500

How His Income Compares With the Full New State Pension

For comparison, the full new state pension in 2025-26 is worth approximately £11,973 annually. This means Mr Perkins receives significantly more than the standard amount due to decades of additional contributions under SERPS.

Does His Income Exceed the Minimum Retirement Living Standard?

Yes. However, while his income exceeds the minimum living standard estimate, it remains relatively modest and is far from the retirement income many people associate with taxable pension wealth.

His wife helps reduce the family’s tax burden through the Marriage Allowance transfer, allowing 10% of her unused personal allowance to be passed to him.

Why Are More Pensioners Being Drawn Into Paying Tax on Their State Pension?

The answer lies largely in frozen tax thresholds and rising pension payments. The personal allowance has remained fixed at £12,570 since 2021.

At the same time, the triple lock has continued increasing state pension payments. This process, often described as fiscal drag, gradually pushes more pensioners into the income tax system without any increase in tax rates.

The following figures show how closely the state pension is approaching the tax-free allowance:

Tax Year	Annual New State Pension	Percentage of Personal Allowance
2021-22	£9,339	74.3%
2022-23	£9,628	76.6%
2023-24	£10,600	84.3%
2024-25	£11,502	91.5%
2025-26	£11,973	95.3%
2026-27	£12,548	99.8%

The figures illustrate how the gap between pension income and the tax threshold has almost disappeared.

How Has the Triple Lock Increased State Pension Payments Over the Years?

The triple lock guarantees annual state pension increases based on whichever is highest among inflation, earnings growth, or 2.5%.

As a result, the new state pension has risen substantially.

Tax Year	Increase	Annual New State Pension
2016-17	2.9%	£8,093.80
2017-18	2.5%	£8,296.60
2018-19	3.0%	£8,546.20
2019-20	2.6%	£8,767.20
2020-21	3.9%	£9,110.40
2021-22	2.5%	£9,339.20
2022-23	3.1%	£9,627.80
2023-24	10.1%	£10,600.20
2024-25	8.5%	£11,502.40
2025-26	4.1%	£11,973.00
2026-27	4.8%	£12,547.60

The 2026-27 payment level leaves the full state pension just £22 below the personal allowance.

What Is Rachel Reeves’ State Pension Tax Exemption and Who Will Qualify?

Rachel Reeves recently announced that pensioners relying solely on the state pension would not be required to pay income tax when pension payments exceed the personal allowance.

During the announcement, she suggested the policy would prevent HMRC from chasing pensioners for what she described as “tiny amounts of money”.

However, Treasury guidance released so far indicates the exemption would apply only to pensioners whose sole income is the state pension without any increments.

That wording has raised questions about whether pensioners with SERPS enhancements, like Mr Perkins, will remain outside the exemption despite receiving state pension income only.

If current interpretations prove correct, Mr Perkins could continue paying tax on the taxable portion of his pension while others with similar overall incomes pay nothing.

Why Are Experts Warning That the New State Pension Tax Policy Could Be Unfair?

Several pension experts have raised concerns about potential inconsistencies. Former pensions minister Sir Steve Webb argued that the policy could create unequal outcomes among pensioners receiving similar incomes.

He said:

“The proposed policy favours one very specific group for no very obvious reason.”

He added:

“As far as we can see, the first of these will be let off paying income tax but the second will not. In my view this is completely indefensible.”

Sir Steve acknowledged that protecting pensioners from very small tax bills may be reasonable but warned that raising the personal allowance for everyone would come with a substantial cost to the Treasury.

Former pensions minister Baroness Altmann also expressed concerns.

She said:

“I definitely think that this policy is fraught with risks that will hit people on the wrong side of the cliff-edge, while others will not be affected at all.”

Meanwhile, the Low Income Tax Reform Group has urged ministers to clarify how the exemption will work in practice, warning that the proposal could create additional complexity and fairness concerns.

The long-term impact could be significant. If Mr Perkins’ pension continues rising by 2.5% annually after 2027 while tax thresholds remain frozen, projections suggest his annual tax bill could approach £1,300 by 2031.

Confirmed Facts, Proposed Changes and Common Misconceptions

Confirmed Facts

Alan Perkins receives approximately £16,500 annually from his state pension, including additional income from SERPS. His income exceeds the personal allowance of £12,570, resulting in an annual tax bill of around £800.

The personal allowance has been frozen since 2021, while the triple lock has steadily increased state pension payments, bringing them close to the tax threshold.

Proposed Changes

Rachel Reeves has proposed exempting pensioners who rely solely on the state pension from paying income tax once payments exceed the personal allowance. Current guidance suggests this exemption may apply only to those without additional increments such as SERPS, raising uncertainty about who will qualify.

Common Misconceptions

Many people assume that relying solely on the state pension means no tax will be due, but this is not always the case when income exceeds the personal allowance.

There is also a belief that all pensioners will benefit equally from proposed tax exemptions, although current interpretations suggest some groups may be excluded depending on how their pension income was built up.

Conclusion

Alan Perkins’ situation highlights a growing challenge within the UK pension system. While proposed state pension tax exemptions aim to protect retirees from small tax bills, questions remain about how pensioners with historic SERPS entitlements will be treated.

Until the Treasury provides greater clarity, thousands of retirees may remain uncertain about whether future state pension increases will leave them better off or simply paying more tax.

FAQs About Alan Perkins State Pension Tax

Will every pensioner pay tax once the state pension exceeds the personal allowance?

No. Current proposals suggest some pensioners may receive exemptions depending on their circumstances and income sources.

What is SERPS in simple terms?

SERPS was an additional state pension scheme that allowed workers to build extra retirement income through National Insurance contributions.

Why is the personal allowance important for pensioners?

It determines how much income can be received before income tax becomes payable.

Does the state pension automatically become taxable?

The state pension is taxable income, but whether tax is paid depends on total income and available allowances.

What is fiscal drag?

Fiscal drag occurs when frozen tax thresholds pull more people into paying tax as incomes rise.

Can Marriage Allowance reduce pension tax bills?

Yes. Eligible spouses can transfer part of their unused personal allowance, potentially lowering tax liability.

Why are experts concerned about the proposed exemption?

Experts fear pensioners with similar incomes could be treated differently depending on how their state pension entitlement was built up.